NRI money could ease banks' funding crunch

AI Summary

Indian banks plan to utilize fresh foreign-currency deposits from the diaspora to ease funding pressures, following an RBI policy to absorb overseas hedging costs. Axis Bank's CEO Amitabh Chaudhry highlighted areas for fund deployment including infrastructure, data centers, commercial real estate, and capital expenditure, and also noted increased AI investment in the bank.

Indian banks are likely to use fresh foreign-currency deposits mobilised from the Indian diaspora to replace expensive funding on their balance sheets before deploying the money into new lending, Axis Bank Chief Executive Officer Amitabh Chaudhry said, as lenders prepare to benefit from a recent Reserve Bank of India (RBI) policy move."The first thing banks will do is reduce or pause growth in other very expensive deposits for some time," Chaudhry told Bloomberg in an interview.Indian lenders are leveraging the RBI's decision earlier this month to absorb the hedging costs incurred by banks raising dollars overseas, the report noted. The move enables banks to offer more attractive returns on foreign-currency deposits, part of a broader effort to attract overseas capital and support the rupee.Analysts and economists expect the measure to bring in nearly $50 billion in overseas deposits, noted the report.Chaudhry said the largest share of these deposits is expected to come from the Indian diaspora in the Gulf region, followed by Southeast Asia.Once banks lower their funding costs, the money could be directed towards sectors with immediate financing requirements."Following that, the quickest areas for deployment would be across infrastructure projects, data-center investments, commercial real estate and large capital-expenditure plans," he was quoted as saying.RBI move eases funding pressureThe foreign deposit initiative also comes as banks contend with a widening gap between loan growth and deposit mobilisation.Loan growth has continued to outpace deposits, forcing lenders to offer higher rates on certificates of deposit. Three-month certificates of deposit issued in March were priced as high as 7.5250%.Central bank data cited by Bloomberg showed loans expanded 18% in the two weeks ended May 31, the fastest pace in nearly two years, while deposits increased 12% during the same period.The RBI's latest measure is expected to ease pressure on lenders by helping them tap overseas deposits at a lower effective cost.Axis Bank increases AI spendingSeparately, Chaudhry said Axis Bank has allocated about 15% of its technology budget this year to artificial intelligence as it accelerates investments in the technology.Spending on AI is expected to increase substantially in the coming years, he told Bloomberg."If we can understand, use and implement AI well — internally and externally — we can create a difference between us and competition," Chaudhry said, adding that the bank has hired a Chief AI officer to lead the vertical.Chaudhry, who became Axis Bank CEO in January 2019, oversaw the acquisition of Citigroup Inc.'s consumer business in India and has expanded the lender's digital investments during his tenure. Axis Bank is India's third-largest private-sector lender by assets, behind HDFC Bank and ICICI Bank.(With inputs from Bloomberg)